My last blog talked about hitting the refresh button at the start of 2014, shaking off the bad or embracing the good as the giant ball dropped at Times Square.
I mentioned the importance of hitting the ground running in 2014 and today had the opportunity to listen to a group of networkers talk about just that and for some the first few weeks were already promising. As the first meeting of the year, for this networking group, many reported success in 2013 over the previous year. How did they know. They track their business.
Now for some of you that’s a no brainer.
- The sales pipeline – I think we all understand the importance of filling the hopper/pipeline with prospects to help take the peaks and valleys out of the business cycle. When we are busy it is difficult to remember that new leads may take months to emerge as business, but it is vital that we keep looking for new customers even during peak periods. Every business is different in terms of the length of time required to turn a lead into a sale, so first understand your own cycle. Equally important, is to track the leads so you know where to put the effort/money to build the business. Ask people how they heard about you. And track what activity – advertising, website, social media, newsletter, networking – generated the business.
- Conversion rate – So we are really good at generating leads but not so much at converting those leads into sales. How many leads do you need to generate the business you require to meet your revenue targets. If you need 10 new customers a month (average sale $2,000 a month) to meet your target and your conversion rate is 25% then you must generate 40 new leads a month. Understanding this dynamic helps you to manage the business throughout the year and make adjustments as required.
- Cost of New Business – Tracking leads and where they came from tells you what activity is generating new business but it’s also important to know at what cost. Using our example in #2, we know that we need 10 new customers or $20,000 each month to meet our targets, But what did it cost to get that $20,000 in new revenue? You paid to generate 40 leads, remember. Knowing the cost, and what activity generated the revenue, is fundamental in managing your business.
- Customer satisfaction – It’s more expensive to generate a new customer than it is to keep an existing one. If you are growing your business 10% a year but losing the same amount, you need to know why. I have talked at length about how important it is to talk to your customers. Develop an advisory board to help you provide an excellent service level. Survey your customers. Seek out testimonials from satisfied customers. Happy customers can provide excellent referrals.
Track the details. What is the customer spend? What happens year on year? Can you raise the spend with incentives?
- Profit & Cash Flow- Profit is what drives the bus, but cash flow fills the tank. Expectations around profit are different for every business, but understanding what impacts profit helps you to better determine what adjustments might have to be made to expenses or revenue. That analysis needs to take place monthly -don’t wait until November to determine that the wheels fell off along the way.
Cash flow – You need cash flow to run a business. It doesn’t matter how much money is coming in down the road if you don’t have enough money to get from here to there. It’s the difference between what comes in and what goes out.
Take a look at your own cash flow
- Start with the amount of cash on hand – your current bank account balance(s)
- Make a list of what’s coming in – customer payments, collection on bad debts, interest or investment earnings, etc. Include when it will be coming in.
- Make a similar list of money going out – payroll, monthly overhead, accounts payable or other debt, taxes payable, equipment purchases, marketing expenses, etc.
Now, track what actually happens. Set up an Excel spreadsheet with your projections and the actual numbers. (You can also find worksheets online) It will help you see what needs to be adjusted.
There are many metrics in business, and each business may have its own measuring tools. The point here is make sure you measure results. It can be the difference between success and failure.